Factors That Affect Your Two Wheeler Loan Interest Rate in India
Purchasing a two wheeler via a bike loan can be an affordable choice for many individuals. It allows individuals to own a vehicle without the need to provide the total amount upfront. However, one of the important aspects to note is the interest rate of the two-wheeler loan. The interest rate at which the borrower is charged decides the total amount paid as well as the monthly instalment. Knowing the factors that determine the rate can help you in making informed decisions. This article explains factors that the lender considers while deciding the interest rate of a two wheeler loan.
Your Credit Score
Lenders review your credit score to determine your repayment history. A good credit score indicates that you have been able to repay previous loans and credit card dues. Lenders may prefer a score of over 750.
A favourable credit score may result in a lower interest rate on two wheeler loans, while a low score may result in higher interest or rejection of the loan. Borrowers must therefore review their credit report and clear any pending payments before applying for a bike loan.
Employment Type and Income Level
Your job type and monthly income determine the terms of the loan. Salaried individuals with stable income may be considered low-risk borrowers. On the other hand, businessmen or self-employed individuals with stable income and statements of accounts can also get competitive interest rates.
Lenders consider a borrower’s ability to repay based on their income. If the income is consistent and meets the minimum limit, you may get a loan with a favourable interest rate.
Loan Amount and Tenure
The size of the loan borrowed and the tenure also affect the interest rate calculations of a two-wheeler loan. A higher loan amount may have higher rates compared to smaller loans, based on the policies of a lender.
Similarly, longer loan durations can result in an increase in total interest charged and a lower monthly instalment. Shorter tenures may lead to reduced interest rates, but higher monthly EMIs.
Model of Two Wheeler
The model and cost of the bike also influence the interest rate. Lenders may provide favourable rates for popular or standard models that have a stable resale value. Conversely, if the vehicle is classified as high-risk, such as sports bikes or luxury variants, the interest rate for such vehicles may be higher.
Additionally, electric two-wheeler loans may have variable terms, subject to government grants and promotional schemes by lenders.
Loan-to-Value (LTV) Ratio
The Loan-to-Value (LTV) ratio refers to the percentage of the vehicle’s cost financed by the lender. A higher LTV indicates that an individual borrows a greater amount and pays a lesser funds initially. Although numerous lenders provide loans covering up to 85–90% of the motorcycle’s cost, a higher LTV may result in an increased interest rate for two-wheeler loans.
Making a high down payment can lead to a reduced interest rate, which can further result in a lower overall interest paid in the long term.
Relationship with the Lender
Your previous experience with the lender also determines the two wheeler loan interest rate . Lenders may prefer individuals who have a savings account, credit card, or previous loans paid on time. In some cases, past customers can be provided with pre-approved bike loan facilities at competitive rates, along with minimal documentation.
Current Financial Obligations
Lenders also look at your current financial obligations, such as your other loans and credit card repayments. If your monthly debt payments are relatively high in relation to your income, the lender may increase your rate of interest or reduce the amount of your loan. Managing expenses apart from EMI payments may help you get an affordable interest rate.
Market Conditions and Lending Policies
Interest rates further rely on general economic conditions, including the Reserve Bank of India (RBI) policy rates and inflation rates. Lenders can modify their rates according to these external factors. Each lender can have its own internal rules and risk evaluation procedures. Therefore, interest rates can vary with various lenders for the same borrower.
Conclusion
The rate of interest on the two-wheeler loan depends on a number of variables, including the repayment history and credit record of an individual. Understanding how lenders assess risk and set interest rates can help you to plan in advance and make your loan proposal efficient. Choosing the right lender, comparing loan offers, having a favourable credit record, and fulfilling financial obligations are important while applying for a bike loan. With efficient planning and an understanding of these factors, you may get a two wheeler loan at a favourable rate.
